Aegion (AEGN) Comfortably Beats On Q1 Earnings & Sales

Aegion Corporation (NASDAQ:AEGN) reported first-quarter 2016 adjusted earnings of 12 cents per share, which declined around 7.7% year over year. Earnings, however, beat the Zacks Consensus Estimate of 8 cents.

Including restructuring, impairment and acquisition related items, Aegion reported a loss per share of 11 cents in the quarter, against a profit of 4 cents in the prior-year quarter.

Operational Update

Total revenue of $293.9 million in the quarter dropped 4.9% year over year. However, the figure surpassed the Zacks Consensus Estimate of $282.9 million.

Adjusted cost of sales decreased 4.7% to $238 million from $250 million in the year-ago quarter. Adjusted gross profit declined 6% to $55.7 million from $59.2 million in the prior-year quarter. Adjusted gross margin contracted 20 basis points (bps) year over year to 18.9%.

Adjusted operating expenses went down 1.9% year over year to $48 million. Adjusted operating income was $7.7 million, down 25.5% year over year. Operating margin in the quarter was 2.6%, contracting 70 bps from the year-ago quarter.

Segmental Performance

Revenues from the Infrastructure Solutions segment rose 2.7% year over year to $125.8 million. The segment’s adjusted operating income increased 22.7% year over year to $10 million.

The Corrosion Protection segment’s revenues fell 9% to $92.4 million from $101.7 million in the prior-year quarter. The segment reported an adjusted operating loss of $2.9 million against an income of $0.5 million in the year-ago quarter.

Revenues in the Energy Services segment decreased 10.9% year over year to $75.7 million. The segment reported an adjusted operating income of $0.6 million, which plunged 64% from the year-ago quarter figure.

Backlog

Consolidated backlog at the end of the first quarter was $756.7 million, marking an increase of around 1% from the Mar 31, 2015 level.

Financial Update

Aegion had cash and cash equivalents of $127.9 million at the end of first-quarter 2016 compared with $209 million at 2015 end. The decline in cash was due substantially to funding for the acquisition of Underground Solutions, Inc. in Feb 2016.

The company used $1.98 billion of cash in operating activities in the reported quarter compared with cash usage of $12.2 billion in the year-ago quarter. As of quarter end, Aegion’s long-term debt increased to $363.4 million from $333.5 million as of Dec 31, 2015.

Realignment and Restructuring Plan

In January, Aegion announced the 2016 restructuring actions to downsize its exposure in the upstream oil markets and reduce consolidated costs. As part of management's ongoing assessment of its energy-related businesses, the company determined that the persistent low price of oil is expected to create market challenges in the foreseeable future, including reduced customer spending this year.

During the first quarter, Aegion made significant progress toward completing the objectives of the 2016 Restructuring, including downsizing Energy Services' upstream operations in Central CA, reducing Corrosion Protection's upstream exposure by divesting its interest in a Canadian pipe coating joint venture, right-sizing Corrosion Protection to compete more effectively, and reducing corporate and other operating costs.

The restructuring plan is expected to reduce costs by $15–$16 million, more than originally planned, with most of the cost reductions expected to be realized in 2016, primarily through headcount reductions and office closures. The company expects to trim headcount by approximately 900 employees, or 14.5% of the total workforce. Headcount reductions totaled 705 as of Mar 31, 2016.

Aegion expects to substantially complete the restructuring in second-quarter 2016 and record total estimated pre-tax charges of $11–$13 million, most of which will be cash charges. This is an increase from the original estimate of $7–$9 million.

Outlook

Aegion is poised to benefit from stable conditions across its end markets, realize cost reduction targets and improve execution to deliver full-year 2016 adjusted earnings per share in line with 2015 levels.

The acquisition of Underground Solutions and the divestiture of the Canadian pipe coating business will also drive the company’s results as these core markets provide Aegion with the opportunity for long-term stable organic growth.

Zacks Rank

Aegion currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the sector include USG Corporation (NYSE:USG) , Headwaters Inc. (NYSE:HW) and Simpson Manufacturing Co., Inc. (NYSE:SSD) . All three stocks sport a Zacks Rank #1 (Strong Buy).